The Precious Metals Week in Review – May 15th, 2020

1. The battle against COVID-19 remains the top news priority as countries race to find treatment protocols that could lessen the more serious effects of infection while researchers increase their efforts to find a vaccine that will inoculate the populace at large.

The Precious Metals Week in Review – May 15th, 2020.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment was lower again for the week ending May 9, falling by 195,000 claims from the previous week’s revised level to reach 2,981,000 claims. The previous week’s claims level was revised higher by 7,000 – a match of the revision from the last weekly report. The four-week moving average of claims also fell again this week, dropping by 564,000 from the previous week’s revised average to reach a new level of 4,173,500. The previous week’s moving average was also revised higher by 7,000 claims. State reporting systems continue to be plagued with problems and it is highly likely that unemployment data will remain volatile for months.

3. U.S. Treasury Secretary Steven Mnuchin said on Sunday that the real U.S. unemployment rate might already be at 25% due to the shutdowns in place to attempt to halt the spread of COVID-19. During a “Fox News Sunday” interview with Chris Wallace, Mnuchin said “The reported numbers are probably going to get worse before they get better.” Despite that outlook, Mnuchin optimistically said “next year is going to be a great year.” The “real” unemployment rate includes people who are not looking for work or are underemployed. The Bureau of Labor Statistics currently places that figure at 22.8% according to the last Non-Farm Payrolls report. Mnuchin said “These numbers impact real people. My numbers aren’t rosy, what I said is you’re going to have a very, very bad second quarter.” He added that the United States could see “permanent economic damage” if the country does not proceed with its reopening.

4. Federal Reserve Chair Jerome Powell hinted that while the Fed is against taking interest rates negative, as President Trump has long demanded, such a move might actually be on the table is it continues to pull out all the stops to combat the complete economic devastation brought about by the spread of COVID-19. Chair Powell said “I know there are fans of the policy, but for now it’s not something that we’re considering. We think we have a good toolkit and that’s the one that we will be using.” Powell reiterated, saying “The committee’s view on negative rates really has not changed. This is not something that we’re looking at.” Market analysts ignored every other word that Powell uttered and focused in on the term “for now” and immediately jumped to the conclusion that this phrase likely means that the idea of negative rates is being actively considered, despite what Powell may claim.

5. JC Penney was the latest retailer to fall victim to the spread of the coronavirus. The battered retailer is expected to make its filing for bankruptcy protection on the heels of J. Crew and Neiman Marcus, who were the first two large retailers to make such a move. All three of these retailers have suffered under staggering piles of debt for years and were already on a likely path to bankruptcy before the health crisis hit, but the financial picture for other retailers who were not already struggling as badly as those three does not look much better. While many U.S. states begin to reopen their economies, others are extending their shutdowns or have set such restrictive capacity limits on retail outlets and restaurants that it would be nearly impossible for them to operate at break-even, much less earn a profit if they reopen.

6. U.S. producer prices plunged in April, falling by the largest annual decline since 2015. Economists have been projecting that the U.S. may see a period of deflation, rather than the inflation that the Federal Reserve is trying to restore, due to depressed demand resulting from the economic shutdowns underway. The retail sales report for April seems to back up that view as sales shockingly plunged 16.4% – markedly worse than the 12.3% expected by economists. Analysts say that the coronavirus appears to have accelerated the trend of restructuring and consolidation among traditional brick and mortar retailers as consumers were suddenly driven to making their purchases almost entirely online by shelter-in-place orders. Even as consumers jumped into online purchasing, they appear to have reduced their non-essential purchases as the fear that their incomes could disappear amid the shutdowns increased.

7. The backlash against China continues over the origins and handling of the coronavirus that has triggered the global pandemic. As countries take their tentative steps to try to restart their economies, more and more are beginning to publicly make statements suggesting that they may investigate and possibly seek compensation from China over its handling of the initial outbreak of the virus. Supply chain issues that arose during the outbreak have also led multiple manufacturers to begin taking steps to shift some of their manufacturing plants out of China and into their own home territories. Grumblings of a resumption of a trade war with China have resumed, only this time the ensuing trade dispute may be between China and the rest of the world and not just Beijing and the United States.

8. Crude oil saw a third straight week of gains. Data showed a pickup in demand for crude in China as it continues to restart its own economy in the wake of the pandemic, which first began within its borders. On Friday, Brent crude was up $1.14 to settle at $32.27 per barrel, a gain of 3.66%. West Texas Intermediate settled up 5.9% reaching $29.52 per barrel. OPEC and other major producers continue to follow through on the supply cuts they previously agreed to and as economies begin to reopen in the wake of the pandemic, demand fundamentals for oil appear set to continue to improve.

9. The euro spiked higher against the U.S. dollar at the start of trading as Asia opened on Sunday but plunged vertically lower as Monday approached. The euro trended mostly sideways against the dollar for the rest of the week, bouncing around in a narrow range, and will finish the week out slightly lower against the U.S. dollar. The Japanese yen opened the week fairly flat against the U.S. dollar but had slid to its lows for the week by late Monday when it reversed course. The yen climbed back near its opening levels by Thursday, but saw another reversal near mid-afternoon, dipping lower again. As Friday opened, the yen moved back higher again, but a brief dip to the downside just before the close will ensure that the yen will finish out the week lower against the U.S. dollar.

COVID-19 and the follow-on effects of the global pandemic remain the primary concerns for all markets. In the U.S., tensions continue to rise as citizens express their displeasure over the ongoing extensions of lockdowns and the removal of their freedoms. As media outlets continue to spread fear that consumers may be unwilling to emerge from the protective cocoons the government has forced them into, anecdotal evidence seems to suggest that consumers are not only ready, but also willing to do just that.

In some states where lockdown orders have been relaxed, restaurant patrons flocked to bars and restaurants, clearly ignoring social distancing orders, as their governing officials reacted in horror, in an attempt to return to some sort of normalcy in their lives.

Health officials continue to closely monitor case numbers of COVID-19 to determine if the push to reopen America could have severe negative effects on attempts to control the spread of the virus.

As Fed Chair Jerome Powell reiterated on Wednesday that the Fed remains steadfastly against moving to negative interest rates, Goldman Sachs strategist Zach Pandl, co-head of global foreign exchange rates and emerging markets strategy outlined what could trigger the Fed to make such a move in spite of its stated stance. Pandl said “If the economy has another big setback…where you have a second wave of infections and it would really take the recovery off course, then I do think that that opens up a possibility of a range of additional actions.” Speaking to CNBC’s “Street Signs Asia”, Pandl continued, saying “even in that scenario, I think fiscal policy would be the first step. I don’t think that cutting rates to negative territory would potentially be very helpful even in that environment.” Despite saying such a move wouldn’t be “helpful”, Pandl said “But who knows, policymakers are going to want to try new things if the economy is really struggling for a period of time. So in that scenario, perhaps they consider it [negative rates], otherwise I think it’s pretty low probability at this point.”

Retail sales, producer prices, and industrial production all plunged in the U.S. in April as governmentally forced economic shutdowns took their toll on consumers and manufacturers alike.

Tensions between China and other nations are on the rise as the virus continues to take a massive toll on global economic output. Australia now appears to be at the head of the pack of accusers, despite the U.S. and European Union both calling for investigations into the origins of the virus and China’s handling of the initial outbreak. Australian lawmakers have already made calls for investigations and have also asked for compensation from Beijing for the economic damage resulting from the spread of the virus. Beijing, in turn, accused Australia’s lawmakers of making “malicious slanders” and accused them of simply repeating “false allegations of some China-bashing politicians in North America.” China has proposed an 80% tariff on Australian barley and suspended beef imports from four meat processors in Australia in what clearly appears to be retaliation for the lawmakers’ claims.

The escalating tensions have many market analysts worried that the trade war between the U.S. and China which began before the outbreak could escalate into a full-scale and global event.

Savvy investors continue taking steps to make sure that their portfolios remain diversified against renewed uncertainties and many continue to use physical precious metals for that very purpose.

Remember that precious metals should always be viewed as a long-term investment and that the key to profitability through the ownership of physical precious metals is to actually acquire and own the physical products and to hold them for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long term.

Trading Department
Precious Metals International, Ltd.

Friday to Friday Close (New York Closing Prices)

May 8th2020

May 15th2020

Net Change

Gold

$1709.15

$1747.55

38.40 + 2.25%

Silver

$15.49

$16.66

1.17 + 7.55%

Platinum

$771.30

$798.35

27.05 + 3.51%

Palladium

$1868.60

$1880.40

11.80 + 0.63%

Dow Jones

24331.32

23685.42

(645.90) – 2.65%

Previous year Comparisons

May 17th2019

May 15th2020

Net Change

Gold

$1275.90

$1747.55

471.65 + 36.97%

Silver

$14.41

$16.66

2.25 + 15.61%

Platinum

$820.00

$798.35

(21.65) – 2.64%

Palladium

$1315.80

$1880.40

564.60 + 42.91%

Dow Jones

25764.00

23685.42

(2256.95) – 8.70%

Here are your Short Term Support and Resistance Levels for the upcoming week.